ECONOMIC CONDITION

OF INDONESIA
BY
ENDANG SIH PRAPTI
FEB - UGM

TOPICS OF DISCUSSION

WHO IS INDONESIA
WHAT IS INDONESIA
FROM THE POINT OF VIEW OF
ECONOMICS

FIRST DISCUSSION

WHO IS INDONESIA
FROM THE POINT OF VIEW OF
ECONOMICS

Indonesian Map

INDONESIA BORDERS WITH 10

COUNTRIES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

INDIA (AUGUST 8, 1974)

INDIA-THAILAND (JUNE 22, 1978)
THAILAND (DECEMBER 17, 1971)
MALAYSIA THAILAND (DECEMBER 21, 1971)
MALAYSIA (OCTOBER 27, 1969)
SINGAPORE (MAY 25, 1973)
VIETNAM (JUNE 26, 2003)
PHILIPPINE (JUNE 23-25,1994 ON GOING)
PALAU (INISIATED)
PAPUA NEW GUINEA (FEBRUARY 12, 1973)
AUSTRALIA (MAY 18, 1971)
TIMOR LESTE (SEPTEMBER 14, 2000, ON
GOING)

INDONESIA, THE LARGEST

ARCHIPELAGIC COUNTRY IN THE
WORLD

1.
2.
3.
4.
5.
6.

TERRITORIAL SIZE (include ZEE): 5.8

MILLIONS KM2
BEACH LINE: 81,290 KM
17,508 ISLANDS, among them 11,801 has
not been named
740 ETHNIC GROUPS
RELIGIONS: ISLAM, CATHOLIC,
CHRISTIAN, HINDU, BUDHA
LANGUAGES: NATIONAL LANGUAGE
BAHASA INDONESIA and
LOCAL/ETHNICAL LANGUAGES

O-N-E TULISAN NYA

WAN BACA NYA
SATU ARTI NYA
O-N-E TULISAN NYO
WAN BACA NYO
CIEK ARTI NYO
O-N-E SERATANIPUN
WAN WAOSANIPUN
SETUNGGAL ARTINIPUN

NATURAL BASED OF
ECONOMIC ACTIVITIES

MARITIME
TRADE
TRANSPORTATION
AGRICULTURE
MINING
FORESTRY

POPULATION
1.

2.

213 MILLIONS, 4TH LARGEST

POPULATION IN THE WORLD
92 MILLIONS LIVE IN URBAN
AREA
121 MILLIONS LIVE IN RURAL
AREA

STATE AND GOVERNMENT

1.
2.
3.

4.
5.

INDEPENDENCE: AUGUST 17, 1945

CAPITOL: JAKARTA
STATE FORM: REPUBLIC
NAME: NKRI, NEGARA KESATUAN
REPUBLIK INDONESIA
SYSTEM: DECENTRALIZATION
33 PROVINCIAL GOVERNMENTS
422 DISTRICT/CITY GOVERNMENTS

NATIONAL IDEOLOGY
1.
2.
3.
4.

5.

PANCASILA
KETUHANAN YANG MAHA ESA
KEMANUSIAAN YANG ADIL DAN
BERADAB
PERSATUAN INDONESIA
KERAKYATAN YANG DIPIMPIN OLEH
HIKMAT KEBIJAKSANAAN DALAM
PERMUSYAWARATAN PERWAKILAN
KEADILAN SOSIAL BAGI SELURUH
RAKYAT INDONESIA

NATIONAL IDEOLOGY
1.
2.
3.
4.

5.

PANCASILA
BELIEVE IN THE ONE AND ONLY GOD
JUST AND CIVILIZED HUMANITY
THE UNITY OF INDONESIA
DEMOCRACY GUIDED BY THE INNER
WISDOM IN THE UNANIMITY
ARISING OUT OF DELIBERATIONS
AMONGST REPRESENTATIVES
SOCIAL JUSTICE FOR THE WHOLE OF
THE PEOPLE OF INDONESIA

SECOND DISCUSSION

WHAT IS INDONESIA
ECONOMIC CONDITION OF
INDONESIA

INDONESIAN
ECONOMIC SYSTEM

PANCASILA
ECONOMIC SYSTEM
A MARKET ECONOMY SYSTEM
WHICH IMPLEMENTATIONS
ARE ROOTED IN THE
FIVE PRINCIPLES OF PANCASILA

PANCASILA ECONOMIC SYSTEM

A MIXED ECONOMIC SYSTEM

INDIVIDUAL INTERESTS AND
COMMUNITY INTERESTS BOTH ARE THE
FOCUSES OF ECONOMIC DEVELOPMENT
INCOME GROWTH AND INCOME
DISTRIBUTION ARE OF THE SAME
IMPORTANCE
A COMBINATION BETWEEN TOP DOWN
STRATEGY AND BOTTOM UP STRATEGY

INITIAL CHALLENGES
IN INDONESIAN ECONOMIC
DEVELOPMENT

POVERTY
THE CHOICE BETWEEN TUMMY
AND DIGNITY
LABOR & NATURAL ABUNDANCE VS
CAPITAL & TECNOLOGY POOR

INDONESIAN
ECONOMYS
PERFORMANCE
ECONOMIC GROWTH
SECTORAL OF ECONOMY
STRUCTURAL CHANGE
INFLATION & UNEMPLOYMENT
INTERNATIONAL ECONOMICS
IMPACTS OF GLOBAL FINANCIAL
CRISIS

ECONOMIC GROWTH

INDONESIAN ECONOMIC
GROWTH WAS AROUND 7%
PER YEAR ON THE AVERAGE
AFTER CRISIS, INDONESIAN
GROWTH WAS 5% A YEAR ON
THE AVERAGE

Sectoral Share on GDP (%)

2005

2006

2007

2008

Agriculture
Mining & Quarrying

14.92

14.50

14.21

13.83

9.66

9.44

9.10

8.73

Manufacturing
Electricity, Gas & Water

28.37

28.08

27.83

27.41

0.66

0.66

0.66

0.69

5.82

5.92

6.08

6.21

16.37

16.77

16.92

17.26

Transport & Comm.

Finance

5.85

6.24

6.76

7.25

9.12

9.21

9.21

9.36

Services

9.23

9.18

9.24

9.27

100

100

100

100

Construction
Trade, Hotel & Rest.

GDP
Source: BPS

Sectoral Growth Rate (%)

2005
Tradable
Agriculture
Mining & Quarrying
Manufacturing
Non-Tradable
Electricity, Gas & Water
Construction
Trade, Hotel & Rest.
Transport & Comm.
Finance
Services
GDP
Source: BPS

2006

3.81
3.72
2.72
3.36
3.20
1.70
4.60
4.59
7.81
7.43
6.30
5.76
7.54
8.34
8.30
6.42
12.76 14.23
6.70
5.47
5.16
6.16
5.69
5.50

2007

3.85
3.43
2.02
4.67
8.82
10.33
8.61
8.41
14.04
7.99
6.60
6.27

2008

3.42
4.77
0.51
3.66
8.71
10.92
7.31
7.23
16.69
8.24
6.44
6.06

Structural
Change in
Indonesian
Economy in 40
Years
The Domination
of Agriculture
Sector in GDP
decreased
The Share of
Services Sector
on GDP was
constant
Manufacturing
Sector increased
gradually

SMALL AND MICRO SCALE BUSINESS

SMALL SCALE BUSINESS (UMK) HAS BEEN

THE BACKBONE OF INDONESIAN ECONOMIC
DEVELOPMENT
THE INCREASING ROLE OF UMK IN
INDONESIAN ECONOMIC DEVELOPMENT
BECOMES AN ICON OF THE SUCCESSFUL
IMPLEMENTATION OF BOTTOM UP STRATEGY
TO STRENGTHEN THE ROLE OF UMK,
GOVERNMENT AND LEGISLATIVE LAUNCHED
2 PUBLIC LAWS NAMELY:UU NO.9/1995 AND
UU NO.20/2008

Small and Micro Scale Business (1)

Number of Establishment Without Legal Entity by Industry 2000-2004
Industry
Mining and Quarrying ; Electricity,
Gas, and Water Supply ;
Construction

2000

2001

2002

2003

2004

248,842

287,657

255,824

253,146

256,959

(1,96)

(1,96)

(1,63)

(1,60)

(1,50)

2,598,704

2,538,283

2,728,700

2,641,909

2,671,660

(14,72)

(17,31)

(17,38)

(16,74)

(15,58)

Wholesale and Retail Trade,

Restaurants and Accommodation
Services

8,650,713

8,450,211

9,232,631

9,228,487

(61,15)

(57,64)

(58,79)

(58,47)

(61,16)

Transport, Storage and

Communication

1,855,149

1,765,050

1,926,668

2,170,291

2,307,423

(12,04)

(12,27)

(13,75)

(13,46)

Financial Institution ; Real Estate,

Rental Service and Other Services

1,627,030

1,619,444

1,559,743

1,490,226

1,423,228

Manufacturing Industry

(11,01)

(11,15)
All Sectors Except Agricultural
Sector

(11,05)

(9,93)

(9,44)

10,485,974

(8,30)

14,980,438

14,660,645

15,703,566

15,784,059

17,145,244

(100,00)

(100,00)

(100,00)

(100,00)

(100,00)

Small and Micro Scale Business (2)

Number of Employees of Establishment Without Legal Entity by Industry, 2000-2004

Industry
Mining and Quarrying ; Electricity,
Gas, and Water Supply ;
Construction
Manufacturing Industry
Wholesale and Retail Trade,
Restaurants and Accommodation
Services

2000

2001

2002

2003

2004

601,478

699,243

583,457

592,253

589,869

(2,17)

(2,57)

(2,01)

(2,04)

(1,93)

6,291,441

6,110,058

6,566,232

6,363,565

6,547,855

(22,74)

(22,46)

(20,60)

(21,92)

(21,44)

15,735,642

15,417,018

16,834,815

16,800,343

17,797,199

(56,88)

(56,67)

(57,95)

(57,87)

(58,26)

Transport, Storage and

Communication

2,281,481

2,184,697

2,342,679

2,634,758

2,811,456

Financial Institution ; Real Estate,

Rental Service and Other Services

2,754,648

All Sectors Except Agricultural

Sector

(8,25)

(9,96)

(8,03)
2,793,640
(10,27)

(8,06)
2,723,492
(9,37)

(9,07)
2,642,736
(9,10)

(9,20)
2,800,753
(9,17)

27,664,690

27,204,656

29,050,672

29,033,655

30,547,132

(100,00)

(100,00)

(100,00)

(100,00)

(100,00)

Inflation and
Unemployment
INDONESIA
HAS RELATIVELY HIGH
INFLATION RATE
AND
UNEMPLOYMENT RATE

Inflation and
Unemployment
INFLATION RATE AND UNEMPLOYMENT RATE (%)

Years

2004

2005

2006

2007

2008

Inflation Rate

6.1

10.5

13.1

11.06

Unemployment
Rate

8.7

9.2

11.8

12.5

9.1

Source: BI

Balance of Payment
2006
I. CURRENT ACCOUNT
A. Goods, net (Trade Balance)
1. Exports, f.o.b.
2. Imports, f.o.b.
B. Services, net
C. Income, net
D. Current Transfers, net
II. CAPITAL & FINANCIAL
ACCOUNT
A. Capital Account
B. Financial Account
1. Direct investment
2. Portfolio investment
3. Other investment
III. ERRORS & OMISSIONS
IV. RESERVES &RELATED ITEMS

2007

2008

Q1-09

10,836

10,401

300

1,793

29,660

32,754

22,909

6,226

103,528

118,014

23,917

-73,868

-85,260

-9,888

-11,797

-13,800

-15,524

4,863

4,968

139.606
-116.697
-12.741
-15.253
5.385

2,944

3,322

350

-17,691
-2,546
-3,030
1,144
2,365

546

-2.132
294

2,594

2,776

-2,427

2,346

2,211

2,139

2,019

2,698

4,174

5,523

1,721

1,947

-3,791

-4,885

-6,167

-2,299

729

-1,008

-112

-204

-14,510

-12,715

1,945

-3,955

19

TRADE BALANCE OF OIL AND NON OIL

PRODUCT
Billion USD

Description
2005

2006

2007 2008*

85.7

100.8

114.0

107.6

Non-oil and gas

66.4

79.6

91.9

83.3

Oil and gas

19.2

21.2

22.1

24.3

Total import

57.7

61.1

74.4

101.1

Non-oil and gas

40.2

42.1

52.5

75.2

Oil and gas

17.5

19.0

21.9

25.9

Total export

*) From January - September

Source: BI

5 PRINCIPAL EXPORT DESTINATION COUNTRIES

1.
2.
3.
4.
5.

JAPAN
USA
SINGAPORE
CHINA
SOUTH KOREA

5 PRINCIPAL IMPORTORIGIN COUNTRIES

1.
2.
3.
4.
5.

CHINA
JAPAN
SINGAPORE
USA
SOUTH KOREA

DIRECT
INVESTMENT
In
IndoAbroa nesia
Net DI
d
(FDI)
2005
2006
2007
2008
2009*

5,271 -3,065 8,336

2,188 -2,726 4,914
2,253 -4,675 6,928
2,019 -5,900 7,919
1,034

In million USD
*) January - March
Source: BI

-392 1,426

FDI FLOWS TO GROSS FIXED

CAPITAL FORMATION
Country

Percent

Venezuela

-2.1

Bangladesh

3.9

Sri Lanka

6.2

Indonesia

6.4

China

8.0

India

8.7

Argentina

9.6

Taiwan

10.3

Brazil

10.5

Vietnam

12.5

Philippines

14.1

Thailand

16.5

Peru

18.9

Bolivia

19.5

Malaysia

20.1

Pakistan

24.1

Ecuador

24.8

Chile

28.3

Cambodia

38.9

Source: UNCTAD World Investment Report 2007

Foreign
Debt

External Debt Outstanding

(in millions USD)

Gov.

2004
2005
2006
2007
q1-2008
q2-2008
q3-2008

Private Total
137,02
82,725 54,299
4
130,65
80,072 50,580
2
128,73
75,809 52,927
6
136,64
80,609 56,032
1
145,52
87,519 58,001
0
146,22
88,131 58,095
6
147,33
86,363 60,975
8

FOREX RESERVES
The Position
remain constant
between USD 50
billion and USD
60 billion for two
years
Still below
secure position

GLOBAL CRISIS IMPACT

ECONOMIC GROWTH COMPARISONS

INDONESIAN STRENGTH IN
ADJUSTING TO THE IMPACT OF THE
CRISIS

Economic Growth Comparisons

q1q2q3q4q12004 2005 2006 2007 2008 2008 2008 2008 2009
USA

3.6

2.9

2.8

2.5

2.1

0.7

-0.8

-2.5

Jepang

2.7

1.9

2.4

0.7

-0.5

-4.3

-8.8

Inggris

2.8

2.1

2.8

2.5

1.5

0.3

-1.9

-4.1

Korsel

4.6

5.2

5.1

5.7

4.8

3.9

-3.4

-4.2

Hongkong

8.5

7.1

6.4

6.8

4.2

1.7

-2.5

-7.8

Taiwan

6.2

4.2

5.7

6.1

4.3

-1

8.45 7.53 8.42

8.7

--

--

--

6.6*)

--

10.09 10.43 11.6 11.9

--

--

--

9.6*)

--

India
China

-8.4 -10.2

Singapura

9.3

7.3

8.4

7.8

7.2

1.9

-0.6

Indonesia

5.7

5.5

6.3

6.3

6.5

6.1

5.2

4.4

Malaysia

6.8

5.3

5.8

6.3

7.1

6.3

4.7

0.1

-6.2

Thailand

6.3

4.6

5.1

4.9

5.3

-4.3

-7.1

Filipina

6.4

5.4

7.2

4.7

4.4

4.5

0.4

*) full year of 2008

-4.2 -10.1

INDONESIAN STRENGTHS/WEAKNESSES

INDONESIAN ECONOMY AND FINANCIAL

SECTOR HAVE NO DIRECT CONNECTION
WITH FINANCIAL SECTOR IN THE USA

OIL PRICE DECREASED DRAMATICALLY

FROM $150 / BARREL TO BELOW $50 PER
BARREL. AND NOW BETWEEN $60 AND
$70 PER BARREL

CURRENT ACCOUNT STILL SURPLUS

EVEN THOUGH THE SURPLUS SHRINKS

INDONESIAN STRENGTHS/WEAKNESSES

EXPORT SHARE TO THE USA, EUROPE,

AND JAPAN TENDS TO BE LOWER AND
THE EXPORT SHARE TO EMERGING
MARKET AND ASEAN BECOME BIGGER

BANKING SECTOR IS ALREADY SOLID

STRONG (?) FOOD SELF RELIANCE.

FINANCIAL MARKET IMPERFECTIONS

(LOW LEVEL OF FINANCIAL MARKET
MINDED OF INDONESIAN ECONOMIC
AGENTS)

Doing Business in
Indonesia

Source: World Bank, Cost of Doing Business , 2005